SEC commissioners voted 4-1 to invite public comment on a proposal for how to end decades of restrictions on the pursuit of investors by private funds and startups. The proposal is driven by a law that repealed a ban on pitching such investments to all but a select few investors, such as those accustomed to pumping cash into hedge funds.

“I recognize that there are very real concerns about the potential impact of lifting the ban on general solicitation,” SEC Chairman Mary Schapiro said before the vote. “While I believe it will be incredibly important for the commission to take a thorough look at the private placement market in the future, I think at this point it is appropriate that we undertake this more narrow mandate that Congress placed upon us.”

The Jumpstart Our Business Startups Act, signed into law by President Barack Obama in April, ended the ban as part of a wider effort to expand funding options for fledgling companies. The shift drew criticism from investor-protection groups and the mutual-fund industry, including the Washington-based Investment Company Institute, which have said that lifting the ban without restrictions may expose investors to misleading advertisements by some private funds.

‘Greatest Threat’

“The greatest threat of all to investors and one that is expected to grow as a result of the JOBS Act involves private offerings,” Jack Herstein, president of the North American Securities Administrators Association, said in a conference call with reporters last week.

In the past, securities laws allowed firms to market non- publicly traded securities only to so-called accredited investors that they were familiar with, usually meaning frequent, wealthy investors. The solicitation rules were designed to protect retail investors from inappropriate risks.

Even as future offerings are marketed to the general public, the new rule would limit participants to those with more than $1 million in assets, excluding primary residences, or those earning more than $200,000 a year. The SEC’s proposal doesn’t include restrictions for how offers are advertised, nor does it establish a system for verifying accredited investors -- only that firms must take “reasonable steps” to check.